Zero Hedge: The Fed came, the Fed saw, and the Fed did what we all knew it was going to do: be extremely dovish. Fed-watcher Philip Marey titled his note ‘Pussyfooting’, in that there was not even advanced notice of any advanced notice towards tapering QE. The Financial Times –which got the US Secretary of Defence’s comments regarding his position on the UK deployment of its two aircraft carriers in the South China Sea massively wrong this week– instead runs with the headline “Fed moves closer to decision on ‘tapering’ massive stimulus”.
“He causes all, both small and great, rich and poor, free and slave, to receive a mark on their right hand or on their foreheads.” Rev.13:16
I contend the only accurate part of that headline is the ‘tapering’ – if one is using the apostrophes in a sarcastic manner. However, there clearly was a “move closer” by the Fed: the question is towards what?
Fed Chair Powell made clear that further “substantial progress” required for tapering is towards maximum employment – not about inflation. That is an enormous de facto shift in its mandate. Imagine if the Covid situation were to get much worse again, hypothetically, and further lockdowns imposed, with further pay-outs for people to stay at home. Against groaning supply chains, we would have high unemployment *and* higher inflation: and the Fed pumping QE in regardless. Perhaps tapering wouldn’t help: but how does QE if yet-higher supply-side inflation becomes even more demand-destructive, and/or finally shifts inflation psychology? Read More
